Income Tax Appellate Tribunal - Jaipur
Jugal Kishore Sharma , Jaipur vs Assessee on 9 October, 2015
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IN THE INCOME TAX APPELLATE TRIBUNAL,
JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI R.P. TOLANI, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No. 686/JP/2011
fu/kZkj.k o"kZ@Assessment Year : 2007-08
Shri Jugal Kishore Sharma cuke The ITO
Prop. M/s. Rajasthan Marble, Makrana Vs. Kishangarh
Road, Madanganj, Kishangarh
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AJZPS 2979 L
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri Manish Agarwal, CA
jktLo dh vksj ls@ Revenue by : Shri O.P. Bhateja, Addl. CIT
lquokbZ dh rkjh[k@ Date of Hearing : 21/09/2015
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 09/10/2015
vkns'k@ ORDER
PER VIKRAM SINGH YADAV, AM
This is an appeal filed by the assessee against the order of the ld. CIT(A), Ajmer dated 27-05-2011 for the assessment year 2007-08 wherein the effective ground raised by the assessee is that the ld. CIT(A) has erred in confirming the penalty of Rs. 1,20,959/- u/s 271(1)( c) of the Act.
2.1 Brief facts of the case are that the assessee is engaged in the business of purchase and sale of marble slab & tiles under the name and style of M/s. Rajasthan Marbles. The assessment of the assessee was 2 ITA No. 686/JP/2011 Shri Jugal Kishroe Sharma vs. ITO , Kishangarh completed by the AO vide his order dated 8-12-2009 determining taxable income of the assessee at Rs. 6,29,620/- as against returned income of Rs. 2,34,330/-. During the course of assessment proceedings, the AO observed that the assessee had shown sundry credit balance of Rs. 3,95,288/- in the name of Ramesh Marble Udyog. The AO made enquiry u/s 133(6) of the Act from M/s. Ramesh Marble Udyog and they intimated that they did not have any transactions with the assessee during financial year 2006-07 and therefore, there was no accounts of the assessee in their books of account. The AO after making enquiry came to the conclusion that the liability ofamount of Rs. 3,95,288/- shown by the assessee in the name of M/s. Ramesh Marble Udyog as bogus which he has treated as assessee's income and added the same by following observations.
''2.2 The above denial by M/s. Rajasthan Marble Udyog was communicated to the assessee vide note sheet entry dated 27-11-2009. In response to which, the assessee filed a written reply in this office on 7-12-2009 submitting as under:-
''With reference to the last proceedings regarding outstanding balance of Rs. 3,95,288/- payable to M/s. Ramesh Marble Udyog, Kishangarh. As per letter copy of M/s. Ramesh Marble Udyogm, they are not having any amount payable by us to them. We could not understand the reason for the same.
However, looking to the above circumstances, we are surrendering the balance of Rs. 39,52,288/- for taxation to purchase peace and avoid any litigation.'' 3 ITA No. 686/JP/2011 Shri Jugal Kishroe Sharma vs. ITO , Kishangarh 2.3 From the above, it has been established on record that the assessee has shown a bogus liability in his books of account. It has been established on record that in actual there is no such liability is in existence. When the denial letter filed by M/s. Ramesh Marble Udyog was made known to the assessee, the assessee came forward with a surrender note submitting that the amount is being offered for taxation. 2.4 Therefore, after considering all the facts and circumstances of the case, the credit balance in the name of M/s. Ramesh Marble Udyog ceased to exist and the amount of Rs. 3,95,288/- is treated as assessee's income u/s 41(1)(a) of I.T. Act, hence added to the total income.'' 2.2 The AO observed that the assessee had concealed and furnished the inaccurate particulars of income. Thus the AO levied the penalty of Rs.
1,20,959/- u/s 271(1)© of the Act vide penalty order dated 8-06-2010. 2.3 Aggrieved by the order of the AO, the assessee preferred first appeal before the ld. CIT(A) who had confirmed the penalty imposed by the AO vide para 4.22 of his order as under:-
''4.22 When the present case was examined in view of this legal position, it is found that appellant had claimed bogus liability in respect of sundry credits balance of Rs. 3,95,288/- in the returned file by him. It was only when AO made enquiry from Ramesh Marble Udyog, that appellant agreed to surrender this amount. In such a situation, AO has rightly concluded that appellant furnished inaccurate particulars of his income, in the return filed by him. It cannot be held that the surrender of income by appellant was voluntary because the surrender was made only after detection of the same by AO. Under the present scheme of things only a miniscule percentage of returns are selected for scrutiny and in all other cases, income declared 4 ITA No. 686/JP/2011 Shri Jugal Kishroe Sharma vs. ITO , Kishangarh by the assessee is accepted u/s 143(1) without making any further enquiry. Appellant was well aware of this and tried to take undue advantage of this scheme of the Department. It is obvious that if his case was not selected for scrutiny, he would have never surrendered the amount of s 3,95,288/-. In this case, it is not established that the conduct and explanation of appellant was bona fide, therefore, the case falls in category (b) of para 4.19 as mentioned above. Therefore, levy of penalty u/s 271(1)(c) is therefore, justified in this case pursuant to the decision of Dharmendra Textiles.' 2.4 During the course of hearing, the ld. AR of the assessee submitted that during the year under consideration the assessee was having opening credit balance of Rs. 4,40,288/- payable to one party i.e. M/s. Ramesh Marble Udyog and after reducing the payment made at Rs. 45,000/- through account payee cheque during the year, the assessee had shown closing balance at Rs. 3,95,288/- in the balance sheet. The ld. AR submitted that during assessment proceedings, information u/s 133(6) was called for by the AO from M/s. Ramesh Marble Udyog who had stated as under:-
''There are no any kind of transaction with M/s.
Rajasthan Marbles, Madanganj, Kishangarh during the F.Y. 2006-07. So there are no any type of account with the concern / firm.'' The ld. AR submitted that the assessee had no control over the affairs of third party i.e. the creditor who is non-related to the assessee and the assessee was also not in a position to explain as to how and in what 5 ITA No. 686/JP/2011 Shri Jugal Kishroe Sharma vs. ITO , Kishangarh manner it had recorded the transactions with the assessee in its books of account and under these circumstances in order to buy the peace of mind the assessee had accepted the closing balance in the books of account as his income in terms of letter filed on 7-12-2009 during assessment proceedings. The ld. AR submitted that in spite of such cooperative gesture of the assessee \, the AO proceed to initiate penalty proceedings u/s 271(1)© of the Act and imposed penalty of Rs. 1,20,959/- on the carried forward opening balance of creditor from preceding assessment years. It is an admitted fact that during the year under appeal assessee has paid a sum of Rs. 45,000/- to M/s Ramesh Marble Udyog (creditor) through payee's account cheque which as per that party i.e. M/s Ramesh Marble Udyog was not accounted for in its books of accounts however, such payment is not doubted by the AO who made the addition of the closing balance only. Thus, the fact remained that assessee had made part repayment to the creditor during the year and the same was not doubted by the AO. Thus, it becomes clear that a dual approach has been adopted by AO which is evident from the fact that on one hand he has accepted the payment made (through cheque) and on the other hand has doubted the closing balance solely on the basis of the so called information received from third party without in any manner making any verification about the correctness and truthfulness of such information. The AO 6 ITA No. 686/JP/2011 Shri Jugal Kishroe Sharma vs. ITO , Kishangarh cannot play "blow hot and cold" at the same time by accepting the fact of part repayment made during the year and on other hand making addition u/s 41(1)(a) of the amount of closing balance shown payable to the abovementioned party by treating the same as non-verifiable at his own sweet will. The ld. AR of the assessee also relied on following decisions on this issue.
(1) Narangs International Hotels (P) Ltd. vs. DCIT , Circle- 1 (2), Mumbai, 137 ITD 53
2. National Textiles vs. CIT , 249 ITR 125 (Guj.)
3. Smt. Durga Devi Somani (ITA No. 672/JP/2011 dated 31-10-2014), Jaipur Bench.
4. Ashish Gupta (ITA No. 671/JP/2011 dated 17-10-
2014), Jaipur Bench
5. Ashok Kumar Kamdar (ITA No. 684/JP/2011 SMC), ITAT Jaipur Bench In the end, the ld. AR of the assessee prayed for deletion of penalty amounting to Rs. 1,20,959/- u/s 271(1)© of the Act confirmed by the ld. CIT(A) 2.5 The ld. DR relied on the orders of the lower authorities. 2.6 We have heard the rival contentions and perused the material available on record including the written submission of the assessee. In the instant case, the AO has made an addition of Rs. 3.95 lacs claiming the same to be a bogus liability and added the same to the total income of 7 ITA No. 686/JP/2011 Shri Jugal Kishroe Sharma vs. ITO , Kishangarh the assessee u/s 41(1)(a) of the Act. In this regard, from the perusal of the balance sheet, it is noted that the assessee's has shown particulars of M/s. Ramesh Marble Udyog amounting to Rs. 3.95 lacs under the head "sundry creditors". The particulars of trade credits in name of M/s. Ramesh Marble Udyog were thus apparent and visible on the face of the balance sheet. From the perusal of the ledger account of M/s. Ramesh Marble Udyog (ABP 11), it is noted that these trade credits form part of the opening balance at the start of the financial year 2006-07 relevant to subject assessment year 2007-08 and these were not trade credits which were received during the subject assessment year. Thus, legally speaking, if trade credits are treated as credits whose liability has ceased to exist, the relevant entries exists in books of accounts and if they are held as bogus, they belong to earlier financial year 2005-06 and not to the year under consideration. Further, if that be the case, whether the said bogus liability can be brought to tax in the year under consideration and provisions of section 41(1) can come to the rescue of the AO as has been done in the instant case. In this regard, reference is invited to the decision of Hon'ble Gujarat High Court in the case of CIT vs Bhogilal Ramjibhai Atara in Tax Appeal No. 588 of 2013. In the instant case, the facts are that for the assessment year 2007-08, the assessee filed return of income which showed, besides others, a sum of Rs.37.52 lacs by way of his debt. 8 ITA No. 686/JP/2011
Shri Jugal Kishroe Sharma vs. ITO , Kishangarh The Assessing Officer inquired into such outstanding dues of the assessee. The assessee supplied details of 27 different creditors. The Assessing Officer issued summons to all these so called creditors and questioned them about the alleged credit to the assessee. In detail, the Assessing Officer in his order of assessment recorded that number of parties were not found at the given address. Many of them stated that they had no concern with the assessee. Some of them conveyed that they did not even know the assessee. On the basis of such findings and considering that the debts were outstanding since several years, the Assessing Officer applied section 41(1) of the Income Tax Act, 1961 and added the entire sum as income of the assessee. The Assessing Officer held that liabilities have ceased to exist within the meaning of section 41(1) of the Act and therefore, the same should be deemed to be the income of the assessee. In the context of above facts, the Hon'ble Gujarat High Court held as under:-
''We are in agreement with the view of the Tribunal. Section 41(1)of the Act as discussed in the above three decisions would apply in a case where there has been remission or cessation of liability during the year under consideration subject to the conditions contained in the statute being fulfilled. Additionally, such cessation or remission has to be during the previous year relevant to the assessment year under consideration. In the present case, both elements are missing. There was nothing on record to suggest there was remission or cessation of liability that too during the previous year relevant to the assessment year 2007-08 which was the year under consideration. It is undoubtedly a curious case. Even the liability itself seems under serious doubt. The Assessing 9 ITA No. 686/JP/2011 Shri Jugal Kishroe Sharma vs. ITO , Kishangarh Officer undertook the exercise to verify the records of the so called creditors. Many of them were not found at all in the given address. Some of them stated that they had no dealing with the assessee. In one or two cases, the response was that they had no dealing with the assessee nor did they know him. Of course, these inquiries were made exparte and in that view of the matter, the assessee would be allowed to contest such findings. Nevertheless, even if such facts were established through bi-parte inquiries, the liability as it stands perhaps holds that there was no cessation or remission of liability and that therefore, the amount in question cannot be added back as a deemed income under section 41(c) f the Act. This is one of the strange cases where even if the debt itself is found to be non- genuine from the very inception, at least in terms of section 41(1) of the Act there is no cure for it. Be that as it may, insofar as the orders of the Revenue authorities are concerned, the Tribunal not having made any error, this Tax Appeal is dismissed.'' In our view, the reasoning of the above decision can be squarely applied to the facts under consideration. The AO has questioned the genuineness of the liability and in absence of the requisite confirmation, has held the same to be a bogus liability. Where the liability itself has been held to be a bogus liability, where is the question of remission or cessation thereof. Thus, in the instant case, where the addition itself is doubtful under the provisions of section 41(1), the same cannot form the basis for levy of penalty.
2.7 Further, we have noted the earlier decisions of the Coordinate Benches in the cases of Smt. Durga Devi Somani vs. ITO , Shri Ashish Gupta vs. ITO and Shri Ashok Kumar Kamdar vs. ITO (supra) where 10 ITA No. 686/JP/2011 Shri Jugal Kishroe Sharma vs. ITO , Kishangarh similar issue has been dealt with in detail and we are in agreement with the reasoning in the said decisions.
2.8 Similar issue has also been arisen in the case of Smt. Sumitra Devi Agarwal vs. ITO, Kishangarh (ITA No.687/JP/2011 dated 1-10-
2015) wherein this Bench of ITAT has deleted the penalty imposed u/s 271(1)© of the Act.
2.9 Thus, in consideration of entirety of facts, circumstances and case laws as relied on by assessee, we delete the penalty of Rs 1,20,959/- levied under section 271(1)(c) of the Act.
3.0 In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 09/10/2015.
Sd/- Sd/- ¼vkj-ih-rksykuh½ ¼ foØe flag ;kno ½ (R.P.Tolani) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@ Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 09 /10/ 2015 *Mishra
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- Shri Jugal Kishore Sharma, Kishangarh
2. izR;FkhZ@ The Respondent- The ITO, Kishangarh
3. vk;dj vk;qDr¼vihy ) @ CIT(A)
4. vk;dj vk;qDr@ CIT
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No.686/JP/2011) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar